Vodafone cell phones were once the future. What happens now?

(Bloomberg) – At Vodafone Group Plc’s headquarters in west London, a sign hangs near CEO Nick Read’s office, telling passers-by: “It’s okay to make mistakes”.

Three-and-a-half years into his tenure as CEO, with activist investors and hedge funds on high alert, Read, 57, is deflecting media reports of ‘pressure’ and not admitting to himself having made any big mistakes. “My view is that every CEO at FTSE has pressure,” Read said in an interview with Bloomberg. “It just comes with the job.”

Read worked at Vodafone for 21 of the company’s 38 years. Nonetheless, the middle-aged CEO of a middle-aged company says he wants to embrace tech-style risk, eschewing traditional telecommunications caution in a bid to boost returns on capital.

Vodafone’s challenges, however, are different from those faced by Silicon Valley’s tech giants. Instead of turning to the metaverse, Read focused on cutting costs, standardizing internal IT systems, and selling units in New Zealand and Malta. He also carved out and priced the group’s mobile mast operations, aiming to take advantage of high infrastructure valuations and pay down debt.

Vodafone was founded in 1984 and considers itself a pioneer. Yet, as it approaches its fifth decade, many of its stellar accomplishments are now reminiscent of a distant past. Its network made the first cellular phone call in the UK on January 1, 1985. The company then led the rollout of text messaging technology and quickly expanded globally.

Its shares peaked during the dotcom boom, giving it a market capitalization of £214bn in March 2000. Today, they languish near their lowest level in 20 years, down 20% even since Read became CEO in October 2018.

Vodafone has spent the past decade entrenching itself and is now caught between former state monopolies like Deutsche Telekom AG, price-cutting new entrants like Iliad SA, Big Tech and regulators. In the UK, main rival EE, owned by BT Group Plc, is making a return on capital, while Vodafone may not be, according to regulator Ofcom.

Against this backdrop, activist investors and hedge funds are now riling up, with some hinting that the company could find better leadership.

The only regret Read will admit is that he didn’t go faster in standardizing the technology. He does not regret the speeches given since November in which he underlined his ambitions to conclude agreements in the United Kingdom, Italy, Spain and Portugal. It surprised even company insiders, who feared their CEO would weaken Vodafone’s negotiating position, according to a person familiar with the talks.

Read’s speech raised expectations of operational mergers with rivals that could boost returns in Europe’s saturated and heavily regulated mobile telecommunications industry. Seven months later, no deal has materialized – and the background noise is getting louder and louder.

P. Schoenfeld Asset Management LP, a New York hedge fund, was quoted in the Financial Times in April criticizing management’s missed opportunities. The Jupiter Corporate Bond Fund also called for faster transactions. Cevian Capital AB, Europe’s largest activist fund, has acquired an undisclosed stake in Vodafone and wants to see deals and less centralization within the company, according to people familiar with the talks. The three investors declined to comment.

Read remains shameless. “My point of view is much more about: do you feel like you have a clear vision of where you are going?” he said. “Sometimes with the media you get a few hedge funds with very small positions that are very loud because they are event driven,” he added. “So it’s in their interest to feed the media.”

He clarified that he wasn’t talking about Cevian: “To be fair to them, I haven’t seen them quoted on anything yet.”

Looking for offers

Investors are hoping the cautiousness of regulators – which saw deals like Three’s bid for O2 stalled in the UK in 2016 – is now a thing of the past. The question is why Vodafone hasn’t made any deals yet.

In February he brokered a deal between Vodafone Espana and private equity operator Masmovil, according to two people familiar with the matter – only to see Masmovil and Orange SA announce a merger on their own later, leaving Read on the sidelines . Vodafone and Masmovil declined to comment, and an Orange representative did not respond to requests for comment.

Read also in February turned down an €11.3 billion offer for Vodafone Italia from Iliad and Apax Partners, saying it was not in shareholders’ interests. Talks with CK Hutchison Holdings Ltd over a deal with Three UK have yet to come to fruition. UK landline provider TalkTalk Telecom Group Ltd is another option, but in a recent earnings call Read suggested a UK mobile deal was a higher priority.

Read says major investors, such as Emirates Telecommunications Group Co. PJSC, now known as e&, are confident. Led by former colleague Hatem Dowidar, e& bought 9.8% of Vodafone shares in May and offered unqualified approval. Abdrn plc, the company’s 8th largest holder with 1.7%, also backs Read. “We support Nick Read’s strategy and are in favor of giving him time to execute it,” said Andrew Millington, his head of UK equities.

Read is also working on other options. Buried in Vodafone’s annual results presentation earlier this month was a new plan to grow the company’s fast-growing Internet of Things business, which now generates 900 million euros in revenue. The company also owns Africa’s huge mobile money service, M-Pesa, and has made significant investments in 5G networks, which could underpin smart cities and factories.

Mr Sometimes-Nice

Read has other complaints to fend off. Centralization – of decision-making and technology – has left executives outside Vodafone’s UK headquarters less empowered and less accountable, three people familiar with the company have said. This could make it harder for outsiders to break up the group, one suggested. Three years after an 18.4 billion euro deal, Vodafone Deutschland – which makes as much profit as the rest of Read’s European units combined – needs technology upgrades. Again, however, there are no regrets.

“A very small minority of some people have tried to argue that there’s complexity in our model,” Read said, saying Vodafone’s model offers local autonomy with shared service centers. “We never use the word centralize.”

Read has sometimes shocked investors. In 2018, a few weeks after taking on the role of CEO, he pledged to keep the dividend, only to reduce it six months later. A year ago, stocks plunged after Read announced unexpected investments in the network. The company also had to reshuffle its board of directors after Olaf Swantee, the former CEO of EE, lasted just two months.

A number of people familiar with Read’s management style described him as “nice”, calling him a good listener and leader. However, three people pointed to his best team. They wondered if Read had surrounded himself with the strongest talent.

Read said his executive committee was “excellent”, although he also said “some are welcome to go” across the company. “We are a culture of performance. So I’m nice – to a certain extent.